Have a 35 yr old disabled son. We have a Special Needs Trust set up for him. We (Parents) have a lot of $$ in IRA’s. Do we need to convert the IRA’s to Roth so he will not have any interest $$ issues that would put his SSI/Medicaid over $2,000 rule in jeopardy?
The assets in the SNT are owned by the trust, not by your son directly, and the SNT balance assuming the trust is drafted correctly are not treated as assets of your son. One of the main benefits of an SNT is providing supplemental income that does not result in loss of Medicaid, SSI or perhaps other govt benefits.
The 1099R for the IRA distribution is issued to the EIN of the trust. The trust then issues a K 1 to your son for income passed out of the SNT to pay his expenses. The attorney who drafted the SNT should be able to explain how the income passed out of the SNT is determined to be exempt from any income test for the benefits. I don’t know exactly how this works.
Obviously, it is critical to name a trustee of the trust who will understand all the issues and be able to meet any tax and other reporting requirements, or to hire tax and accounting assistance. An accounting for the trust may have to be filed with various govt agencies.
Permalink Submitted by Alan - IRA critic on Mon, 2024-08-12 12:21
While an inherited Roth IRA would be non taxable, if you did not convert a probably drafted SNT beneficiary of a traditional IRA would not result in forfeiting govt benefits even though the RMDs would be taxable.
This would be a third party SNT which not only protects the benefits, but there is no Medicaid recapture when the son passes. I think that the Secure Act Regs also allow a charity to be the remainder beneficiary after son passes without disqualifying the trust as qualified for look through. The RMDs would be based on son’s single life expectancy as a disabled EDB, and can be accumulated in the trust and distributed as needed.
Permalink Submitted by Thomas Catto on Mon, 2024-08-12 17:36
So my son’s Special Needs Trust (Just updated it last month so it has all new language) could inherent our IRA’s and any interest could stay in trust and be used for his care without violating the $2,000 Medicaid limit? Was told the RMD would go generate a 1099 in my son’s name and push him over $2,000.